As popular as it is divisive, a breakout strategy is one of the most used techniques for active investors. The idea is fairly simple -- to identify stocks trading within a narrow band and buy them when they move above this channel or sell when they move below. If a stock moves above the channel, it promises substantial gains for investors. But critics warn of the risk of timing such a move or identifying a wrong breakout level. However, when executed correctly, this strategy can yield lucrative gains, which explains its enduring popularity. Identifying Breakout Stocks The first step to selecting the right breakout stock is to calculate its support and resistance level. A support level is the lower bound for stock movements while a resistance level refers to the maximum price which it trades within over a considerable period. In other words, the demand for a stock is at its lowest at its support level, which means most traders are willing to sell it. At the resistance level, most traders are willing to go long on the stock, which means that they would like to add them to their portfolios. The key to identifying breakout stocks is to zero in on those that are on the verge of a breakout or those that have just broken above the resistance level. Determining Whether It’s for Real Stocks which have breached their resistance level should ideally be in high demand among traders. But the test of whether this is a genuine breakout is whether they go on to attain higher prices and the old barrier becomes a new support. This is why it is important to determine whether a long-term price trend is about to emerge. Only a study of long-term trends can determine whether the existing trading channel has been breached effectively. This indicates the strength of the support or resistance levels. If you can identify the effective channel for a stock, picking it even at a not-so-reasonable price would give you significant returns. Screening Parameters • Percentage price change over four weeks between 10% and 20% (Stocks which are showing considerable price increases, but whose gains are not excessive.) • Current Price /52-Week High greater than or equal to 0.9 (Stocks which are trading 90% close to their 52 week highs.) • Zacks Rank less than or equal to #2(Only Strong Buy and Buy rated stocks can get through.) • Beta for 60 months less than or equal to 2 (Stocks which move by a greater degree than the broader market but within a reasonable limit.) • Current price less than or equal to $15 (Stocks which are reasonably priced.) These criteria narrow down the universe of over 8,800 stocks to only 8. Here are the top 4 stocks that meet these criteria: (PRMW) Primo Water Corporation (MPX) Marine Products Corp. (CVCY) Central Valley Community Bancorp (KCG) KCG Holdings, Inc. While backtesting over a two-year timeframe(Apr 18, 2014 to Apr 15, 2016), considering a four-week holding period,a portfolio following this strategy provided a total return of 35.7% compared with the S&P 500’s return of 8.6%.For investors with a reasonably high risk appetite, this strategy provides rich rewards. You can get the rest of the stocks meeting these criteria by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and backtest them first before taking the investment plunge. The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out. Click here to sign up for a free trial to the Research Wizard today. Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. Disclosure: Performance information for Zacks’ portfolios and strategies are available at: http://www.zacks.com/performance. Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report CENTRAL VLY COM (CVCY): Free Stock Analysis Report PRIMO WATER CP (PRMW): Free Stock Analysis Report KCG HOLDINGS (KCG): Free Stock Analysis Report MARINE PRODUCTS (MPX): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research